The prospects of retirement in Romania

According to a
recent survey carried by a major European bank, roughly 54% of the Europeans
have estimated they would remain active on the labor market after retirement
age. Taking part in the survey were respondents from 15 countries, 13 of which
European. At European level, only a quarter of the population is expected to
have the same standard of living after retirement. As usual, figures for Romania
are even more pessimistic: 63% of those
who participated in the survey thought they would have no choice other than to
work even after retirement, to be able to pay their bills.

However, if we want
to make any sense at all of such percentages, Manuela Stanculescu, a
sociologist with the Research Institute for Quality of Life, believes we need
to start from the fact that the aforementioned percentages account for opinions
and expectations. It is the kind of opinion that ties in with the answer patterns
related to the direction in which the country is going (good or bad) or the
level of personal happiness. As for the latter criteria, Romanians have always
come bottom of the table in Europe, because they are pessimistic. Furthermore,
surveys of this kind point to a certain behavioral pattern or a certain kind of
mentality, according to Manuela Stanculescu:

"Romanians show a certain behavioral pattern. It is only in recent years
that they have started, a part of them, nyway, to make long-term plans. For
instance, some of them make plans as regards their pensions. Because of the
communist past, the way we still think goes something like: "the pension is
coming", "we're just waiting for the pension to arrive." It's as if we thought
the pension arrives all by itself and knocks on the door. Citizens of other
countries are aware that their own pension must be their concern. Furthermore, in
those countries there are several financial instruments and means for people to
think out and plan their pension. It is a behavioral pattern that people in the
West grow accustomed to as early as their school days. In Romania, something
like that is neither learned at home, nor is it taught at school. It is only recently,
and only with the above-average population, that the tendency has been
activated, to have that kind of behavioral pattern allowing you to start
planning your holiday or to start making financial plans regarding the
schooling of your child abroad. Something like that had not existed before."

To put it differently, a larger part of
Romanians, as well as the other east-Europeans whose existence was marked by
communism, need to understand that pension planning is also a kind of
responsibility towards one's personal destiny. That pattern of behavior is a
dismal communist legacy which becomes obvious when the saving level is
measured. At this point, the living standard criterion has its say. Around 69%
of Romanians say they are unable to save because of their small incomes.
However, apart from poverty and mentality, there is another cause for that,
which is quite specific: the offer of banking and financial institutions in
general, says Manuela Stanculescu. Here she is once again, this time speaking
about the real causes of the low level of spending.

"A high level of poverty. Many
people cannot save because they don't have anything left to save. Secondly, saving
as such is not a behavioral pattern with them. Why? Because they have not been
educated that way. The problem of the countries that have freshly emerged from
communism is the lack of financial education in schools. Thirdly, there is no
diversity of financial products capable of encouraging saving, since in Romania
banks do not offer that kind of diversity of banking or financial products, as
it happens elsewhere across Europe."

Nevertheless, the population's perception and
expectations are supported by specific data, albeit partially. As early as
2009, the World Bank warned that, in Romania, the pension system deficit would
exceed 5% of the GDP by 2020. It would then follow an upward trend, followed by
a turn down to 6.2% of the GDP by 2050. Deficiencies are caused by the
population's aging rate but also by the costs of transitioning a part of the
contributions from Pension Pillar One (pensions assured through a state-managed
public system funded from the social insurance budget) towards Pillar Two
(pensions assured through mandatory contributions to a privately-managed
pension fund).

In 2009, when these forecasts were made, Romania had already
reformed its pension system structuring it on three pillars: Pillar One, where
the employee contributions are administered by the state, Pillar Two -
compulsory for people under 35 and optional for those between 35-45 - where a
percentage of the employee contributions is privately managed and Pillar Three,
which is a pension system based upon optional participation and managed by
private companies. While a little over 7 million Romanians are contributing to
Pillar Two, only about 410 thousand people opted for Pillar Three at the end of
2016. This proves either that only 400 thousand Romanians had figured out that
pension planning was also a matter of personal choice or that only these people
could afford monthly deposits in a private pension account.

Therefore, people's
pessimism over the need to continue working post retirement is explained by the
present standard of living and also by data which prove the decline of the
population. Here is Manuela Stanculescu again with details.

"The
big problems related to retirement in the future stem from three sources. The
first is population ageing, and we are presently witnessing an accelerated ageing
process, which means that in the next 10-20 years we are going to see an
increasing number of people of retirement age. Their pensions are supposed to
be assured by the young people, whose number has been constantly decreasing and will keep doing so. So these
few youngsters are supposed to provide assistance for a large number of
pensioners and that will put pressure on the pension fund. Another strong
source is the grey economy, which is still very developed in Romania. On the
one hand, it is a means to survive, but on the other hand and in the long run, it
can lead to our very destruction. The real downside to illegal employment is
that we cannot track income sources and that will eventually translate into
either small pensions or no pension funds at all. The third significant source
is international migration, which works like that: let's say that somebody
works abroad illegally, they return to a menial job or to no job at all in the
country after which they leave again. They may have earned a decent living but
they contribute to no pension fund either in Romania or abroad. So, these
phenomena of people's aging and migration are to create really big problems to
the next generations and in the future we may as well speak about poverty among
pensioners. In this not -so- distant future, pensioners may form a category very
vulnerable to poverty. At present they aren't. Children and young people have
presently reached a poverty threshold inacceptable in any modern society."

Experts
believe though, that if authorities focused more on how to improve the
situation of these young people, that would automatically lead to an increased
sustainability of the pension system.